How do market makers harvest through the anchoring effect?

This is a pit that 99% of traders who lose money have stepped into...

01. What is the anchoring effect?
Originating from the field of behavioral finance, it is a type of cognitive bias.
In simple terms, our decisions are easily influenced by first impressions.
Use the initial value you encounter as a benchmark,

For example, investor A enters the market at 100,000.
When BTC drops to 85,000, he will likely think it's very cheap.
Investor B entered the market at 65000.
When it rises to 85,000 points, he will most likely feel it's very expensive.
This is all because investors inevitably compare with the price levels when they first encountered the market.

When A dropped to 85000, I looked and it had fallen by 15%, that's cheap enough, right?
When B rose to 85000, I looked and saw it had increased by 30%, isn't that too expensive?
In fact, whether 85000 is expensive or not has nothing to do with the price of entry.
Judging the market as expensive or cheap based on the entry point is a typical anchoring effect.
The initial 100,000 points or 65,000 points become an anchor.
And we form our views around this anchor.
This is a common mistake that beginners make in trading.

02. How market makers create the "anchoring effect" to play people for suckers.
In the investment market, the anchoring effect often influences investors' decisions, leading to irrational actions, and has also become a common tactic used by market makers.
For example, in a bull market, when a certain altcoin is priced at $100, many investors are reluctant to sell their altcoins.

This is because the price had previously reached $150, and they were unwilling to miss out, thinking that they would wait for the price to rise to $150 again before taking action, but they never saw that price level again.

Subsequent price drop, at 80 dollars, investors were anchored at the previous 100 dollars.
Dropped to 50 dollars, then anchored at 80 dollars.

As a result, altcoins fell all the way, and investors were anchored, caught in a cycle of unwillingness.
This also explains why investors often feel at a loss and lose their ability to operate when altcoins experience consecutive sharp declines.
And when the price starts to rebound and reaches the previously anchored position, investors wake up as if from a dream and choose to sell en masse.

Looking at another scenario, when the price of BTC skyrockets from $60,000 to $800,000, many investors hesitate, feeling that the price is too high and are afraid to buy in.

When BTC continues to surge to 100,000 dollars and then falls back to 80,000 dollars, many people rush to enter the market to "pick up bargains."

This phenomenon of making judgments influenced by recent price signals is very common in BTC investment.
Whether it is "bear market thinking" or "bull market thinking", or behaviors like predicting BTC price levels and chasing highs while cutting losses, they are essentially influenced by cognitive anchoring.
The market maker also takes advantage of this anchor psychology of everyone to carry out successive plays to suckers.

Looking back at my BTC investment journey, I believe many investors have fallen into such cognitive traps!

03. How to overcome the "anchoring effect"?
Actually, it's very simple, you just need a real anchor.

Life is somewhat different. The cryptocurrency market is full of uncertainty, and future trends are difficult to predict. However, the core principle remains the same, which is to establish a solid "anchor" for your own investment system!

Everyone has a unique way of thinking and investment philosophy. Once a fixed thinking paradigm is formed, it becomes difficult to accept other models, which leads to thinking being more or less "anchored."

As Charlie Munger said, "To a man with a hammer, every problem looks like a nail."

Whether it is value investing based on fundamentals or speculative strategies that follow market trends, having a mature trading system as an "anchor" for investment is essential to maintain independent judgment in the cryptocurrency market, which is filled with various types of noise, and to avoid going with the flow.

What investors need to do is to calmly execute their investment strategies within their self-defined "anchoring" framework, which is closely related to the ability boundaries we often mention.

Taking a common dollar-cost averaging strategy as an example, if you adopt a value investing system, then your "anchor" in cryptocurrency investment should be - the intrinsic value of a cryptocurrency!
At the same time, investors should avoid the following four commonly used subconscious "anchors":​
1. Do not use the current price as an "anchor" to measure intrinsic value.
2. Do not use historical prices as a "anchor" to measure the current investment value.
3. Do not use the initial purchase price as an "anchor" to measure investment gains and losses.
4. Do not use the price volatility as an "anchor" to measure the changes in investment value.
So, how do you determine the intrinsic value of cryptocurrency? In cryptocurrency investment, various analytical tools and indicators can be used for comprehensive valuation.

For mainstream public chain coins, one can evaluate indicators such as network throughput, the number of ecosystem projects, and developer activity; for application tokens, one can analyze dimensions such as the implementation of actual application scenarios, user growth data, and market demand.

Through rigorous and systematic valuation analysis, one can find the true "anchor" of value investors. Only by having this "anchor" can one remain calm, hold steadfastly, and even safely navigate through the winter of the cryptocurrency market amidst the extreme volatility of the coin circle.

So to summarize
The most important way to overcome the anchoring effect is to find the anchor yourself.
With a true anchor, one will naturally not be affected by false anchors.
However, true anchors require in-depth research.
Making decisions based on price as a benchmark generally falls into the anchoring effect.